“The India China price” – Why that would be awful for the software industry

The economist wrote a piece on my friend Sridhar from Zoho. There’s a quote which caught my eye – As Mr Vembu puts it: “The India or China price will effectively become the world price.”

These are my first reactions and thoughts and I may change my opinion as I think more about this. As a software entrepreneur and from India, this is the MOST scary thought and prediction ever. I am not saying this wont happen, or may not happen, but its absolutely awful for the software industry if it does.

First to understand what that means, the “price” paid in India for software is non existent. Same for China is my guess, but I cannot confirm. A significant portion of the industry is bootleg software. India does not in general value software. That is because the “price” paid by Indian companies. So what are the ramifications if what Sridhar says does happen?

1. Innovation becomes minimal to non existent: Its fairly relatively easy for Zoho to tell their engineers to copy and
paste the functionality that’s in Word, Saleforce.COM, Webex etc. (Side note: Most would argue Microsoft and Google are not innovators, but fast followers, so that makes it a good model). Innovation is underwritten by profits from products that are priced at market price NOT cost of development. If the rest of the world pays the India price, there’s a) no incentive to innovate and b) no return for the risk taken to break new ground.

2. It would lower the standard of living overall. If developers in advanced countries dont see a premium for their talent and creation, they wont spend the time and effort producing good software. The cost of living (even in a place as inexpensive as Idaho) is a lot more expensive than most places in India. If you get paid about $7-$12 / hour (more than minimum wage but not by that much) then its a race to the bottom, because that’s what Indian developers get paid. The annual 20% increase stories notwithstanding.

I admire Sridhar for all his accomplishments, and think he’s been a great role model for many Indian software entrepreneurs. Pricing your software not on what the market would bear but more on what it costs you to build it is not the right way forward for the software industry.